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Morning NOTE

19 January 2023


The ZAR weakened on the back of Risk off sentiment, following calls of a global recession and more hawkish rhetoric from various Fed governors.


The Rand weakened on the back of recession talks as well as hawkish comments from Fed governor James Bullard.

  • Bullard calling the re-opening of China as a risk of inflation and that might tempt the Fed to keep rates above 5% for longer than anticipated.
  • The markets re-acted negatively with the SP500 falling more than 1.5% and the ZAR weakening back above 17/$.
    • `Earlier in the session US PPI data printed lower,
      • The PPI coming in at 6.2% vs 6.5% expected and a previous release of 7.2%.
      • The lower than expected PPI confirming what CPI indicated, that we have likely seen that inflation has peaked.
    • SA inflation also lower and heading towards the SARB 3-6 band.
    • Stats SA reporting SA CPI at 7.2% vs 7.4%  previous YOY.
  • Although inflation hawks, now use the re-opening of China as a concern for inflationary pressures,
  • It is important to note that, during the pandemic, the closing of China was directly behind the Supply-bottlenecks the West encountered.
  • The lack of production in China, directly associated to the rise of inflation.
  • Hence, the re-opening of China would and should have the opposite effect and we should see inflation become even more subdued.
  • The Bond market, unlike its equity counter parts, ignoring the doom and gloom forecasts for inflation with the 10Yr yield at 3.32%
  • Traders citing, safe-haven buying, but in my opinion, it is more likely associated with the decline in inflation.

Data this week


  • 15h30 :  US BUILDING PERMITS 1.37M EXPECTED VS 1.35 PREVIOUS *** traders will look the data to see how it relates to current doom and gloom recession talks.

Market Movement Today:

  • The Rand under pressure on the back of global risk aversion.
    • The local unit trading around the upper end of the weekly range at 171600.
    • Traders ignoring benign inflationary data but focussed on Fed officials who continues to push for rates above 5%.
      • Earlier US PPI and SA CPI all showed that data inflation have likely peaked.
    • The US10YT at 3.32% confirming this mood.
  • Market nervous around recession talks, but we continue to look at the macro environment and this allows for more ZAR gains.
  • The Rand like all risk assets, appear to pay attention to the gloom and thus we see a lower local unit.
  • The reality is that lower US rates, will have a negative effect on the Dollar (via THE CARRY TRADE).
  • And the ZAR will benefit from this scenario.
    • US 10YR BONDS  3.32%
    • SA 10YR BONDS 9.67%


Expected Ranges:

  • USDZAR :  Expect a range 16.9200-17.3100
    • Importers 17.0500-16.9200
    • Exporters 17.1800-17.3100
  • EURZAR :  Expect a range of 18.3400-18.6100
    • Importers 18.4300-18.3400
    • Exporters 18.5200-18.6100
  • GBPZAR :  Expect a range of 20.9300-21.2900
    • Importers 21.0500-20.9300
    • Exporters 21.1700-21.2900


  • USDZAR 17.0900
  • EURZAR 18.4600
  • GBPZAR 21.0800


  • ESKOM, we remain at stage 6 with the country experiencing 4 hours of load shedding at multiple periods per day.
  • The ANC’s caucus in Parliament wants every single Eskom power station manager to account for the breakdowns and poor management.
    • This after South Africans are without electricity for up to 12 hours daily.
    • Several sources told News24 that the meeting, which blurred the lines between the party and government, took place on Monday night,
    • where Public Enterprises Minister Pravin Gordhan, Energy Minister Gwede Mantashe and the Eskom leadership were peppered with questions on the rolling blackouts.
    • Mantashe doubled down on claims that he’s not to blame for load shedding
    • He said, ‘I don’t build power stations’.  EWN

Loadshedding continues to affect the real economy,

  • The South African Poultry Association (SAPA) said that load shedding severely impacted its process to slaughter chickens, which could lead to shortages across the country.
    • The association said that in the past six weeks, it had to reduce the number of chickens it slaughtered because of its backlog caused by extended power cuts.
    • The association said it had to cull 10 million chicks in the past few weeks.
    • As franchises, such as KFC, struggle with chicken supply as a result of load shedding, SAPA said that this could affect the retail sector. EWN
  • The Department of Public Works and Infrastructure (DPWI) advised its clients to find alternative sources of energy like solar energy due to a shortage of generators.
    • The department is responsible for maintenance and the management of all government buildings.
    • Last week, the Johannesburg High Court moved its proceedings online due to interruptions caused by load shedding.
    • Acting judge president Ronald Sutherland accused the department of providing unreliable generators.
    • However, the department clarified that the court failed to procure diesel for generators. News24
  • SA’s annual inflation rate was 7.2% in December of 2022, down from 7.4% in the prior month,
    • but still above the upper limit of the South African Reserve Bank’s target range of 3%-6%.
  • It was the softest reading since last May, as prices continued to slow down primarily for transportation (13.9% vs 15.3% in November), of which fuels (22.8% vs 25.3%).
    • Slower increases were also seen for food & non-alcoholic beverages (12.4% vs 12.5%);  source: Statistics South Africa


  • On Wednesday, the Dow tumbled 1.81%, the S&P 500 dropped 1.56% and the Nasdaq Composite lost 1.24%, 
    • Those moves came as investors digested disappointing retail sales data and weaker-than-expected producer inflation reading in the US that fuelled recession fears.
    • Hawkish remarks from Federal Reserve officials. St. Louis Fed President James Bullard said rates were not yet restrictive and could rise up to 5.5% by year-end.
    • While Fed’s Mester and Harker also backed more rate increases.
  • US stock futures steadied on Thursday after a broad market selloff during Wednesday’s regular session,
    • as markets continued to grapple with economic uncertainties while assessing the outlook for monetary policy.
    • Futures contracts tied to the three major indexes were all trading near breakeven.


  • US 10 Year declined to 3.34% on Thursday January 19, according to over-the-counter interbank yield quotes for this government bond maturity.
    • Earlier St. Louis Fed President James Bullard said a reopened China makes him “nervous that will lead to upward pressure on inflation.”
    • He said, the end of China’s stringent Covid restrictions quickens the country’s economic recovery, concerns about pent-up Chinese demand
      • — and the inflation that may follow — could mean bad news for the U.S. Federal Reserve.
    • Economic data indicates that the Fed’s aggressive rate hikes are pulling down U.S. inflation,
      • but China’s demand could make commodity prices return to levels from early 2022,
        • before the U.S. central bank embarked on its journey of hiking rates to bring down inflationary pressures.
  • The 10YR treasury however ignoring all the rhetoric trading lower after US PPI once again printed lower.


  • The Dow declined 613 pts to 33,296
  • The Sp500 fell 62 points to 3,928
  • The Nasdaq fell 138 to 10,957


  • The dollar index steadied above 102 on Thursday after dipping briefly to an over 7-month low of 101.53 in the previous session, as investors digested weak US data and hawkish remarks from Federal Reserve officials.
    • Latest data showed the US retail sales declined more than expected in December while US producer prices fell the most since April 2020, stoking concerns over a potential slowdown.
      • Meanwhile, Fed’s James Bullard said rates were not yet restrictive and could rise up to 5.5% by year-end, while Fed’s Loretta Mester and Patrick Harker also backed more rate increases.
    • The dollar has come under renewed pressure this year as the annual inflation rate in the US slowed for a 6th straight month to 6.5% in December,
      • It was  the lowest reading since October 2021, raising hopes that inflation peaked at 9.1% in June.
      • The data cemented expectations that the Fed will downshift to a smaller 25 basis point rate hike in February after delivering a half-percentage point increase in December. Fx news
  • Asian markets sharply lower following a decline on wall street.
    • In Japan, the Nikkei 225 fell 1.44%, snapping a two-day advance and taking cues from a negative lead on Wall Street as fears of a global economic slowdown.
      • The sentiment overshadowed optimism about a slower pace of central bank policy tightening.
    • Investors also digested data showing Japan recorded another trade deficit in December as import growth outpaced export growth.
      • On Wednesday, Japanese stocks rallied sharply after the Bank of Japan defied expectations of another policy adjustment by maintaining its ultra-low interest rates and leaving its yield control policy unchanged.
  • WTI crude oil fell below $79 per barrel on Thursday, extending losses from the previous session as disappointing US data fanned recession fears.
    • Latest data showed the US retail sales declined more than expected in December while US producer prices fell the most since April 2020,
      • The data raising concerns over a potential slowdown.
    • Data from the American Petroleum Institute also showed that US crude inventories increased by 7.6 million barrels last week, defying expectations for a 1.8 million barrel decline.
      • Meanwhile, the International Energy Agency said in its latest outlook that global consumption will reach a record daily average this year led by a demand recovery in top crude importer China
      • Saudi Aramco also said that it was optimistic about oil consumption as China recovers and air travel rebounds. Gulf energy news
  • Gold held above $1,900 an ounce on Thursday, hovering near its strongest levels in nine months on firm expectations that the US Federal Reserve will slow the pace of its interest rate hikes.
    • Meanwhile, the metal came under pressure in the previous session amid hawkish remarks from Fed officials who backed further rate increases,
    • though weaker-than-expected US retail sales and producer inflation data that fuelled recession fears tempered rate hike concerns.
    • Markets are currently expecting the US central bank to downshift to a smaller 25 basis point rate hike in February after delivering a half-percentage point increase in December.
    • Elsewhere, consumer prices in the UK also fell for the second straight month in December, adding to further signs that inflationary pressures may have finally peaked.  Kitco metals

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